[Code of Federal Regulations]
[Title 26, Volume 18]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR301.6501(o)-3]

[Page 372-375]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 301_PROCEDURE AND ADMINISTRATION--Table of Contents
 
                               Limitations
 
Sec. 301.6501(o)-3  Partnership items.

    (a) Partnership item defined. For purposes of section 6501(o) (as it 
read before the enactment of the Tax Equity and Fiscal Responsibility 
Act of 1982), Sec. 301.6501(o)-2, and Sec. 301.6511(g)-1, the term 
``partnership item'' means--
    (1) Any item required to be taken into account for the partnership 
taxable year under any provision of subchapter K of chapter 1 of the 
Code, to

[[Page 373]]

the extent that the item is designated in paragraph (b) of this section 
as more appropriately determined at the partnership level than at the 
partner level, and
    (2) Any other item to the extent affected by an item described in 
paragraph (b) of this section.

The items described in paragraph (a)(2) of this section include items 
related to the partnership (for example, a partner's basis in the 
partnership interest) as well as more general items whose computation 
may be affected by changes to items described in paragraph (b) of this 
section (for example, adjusted gross income, self-employment tax, income 
averaging, medical deduction, and charitable contribution deduction).
    (b) Items more appropriately determined at the partnership level. 
The following items which are required to be taken into account for the 
taxable year of a partnership under subchapter K of chapter 1 of the 
Code are more appropriately determined at the partnership level than at 
the partner level:
    (1) The partnership aggregate and each partner's share of each of 
the following:
    (i) Items of income, gain, loss, deduction, or credit of the 
partnership;
    (ii) Expenditures by the partnership not deductible in computing its 
taxable income (for example, foreign taxes and charitable 
contributions);
    (iii) Items of the partnership which may be tax preference items 
under section 57(a) for any partner;
    (iv) Income of the partnership exempt from tax;
    (v) Partnership liabilities (including determinations with respect 
to the amount of the liabilities, whether the liabilities are 
nonrecourse, and changes from the preceding taxable year); and
    (vi) Other amounts with respect to partnership investments, 
transactions, and operations necessary to enable partners to compute--
    (A) The credit provided by section 38;
    (B) Recapture under section 47 of the credit provided by section 38,
    (C) Their amounts at risk in any activity to which section 465 
applies, and
    (D) The depletion allowance under section 613A with respect to oil 
and gas wells;
    (2) Guaranteed payments;
    (3) Optional adjustments to the basis of partnership property 
pursuant to an election under section 754 (including necessary 
preliminary determinations, such as the determination of a transferee 
partner's basis in a partnership interest); and
    (4) To the extent that the determination can be made from 
determinations that are necessary at the partnership level with respect 
to an amount, the character of an amount, or the percentage interest of 
a partner in the partnership for purposes of the partnership books and 
records or for purposes of furnishing information to a partner--
    (i) Contributions to the partnership;
    (ii) Distributions from the partnership;
    (iii) Amounts to be taken into account by a partner dealing with the 
partnership in a transaction to which section 707(a) applies (including 
the application of section 707(b));
    (iv) The application to the distributee partner of section 751(b); 
and
    (v) The application to the transferor partner of section 751(a).
    (c) Illustrations. This paragraph (c) illustrates the provisions of 
paragraph (b)(4) of this section. The factors enumerated are not 
exhaustive; there may be additional partnership-level determinations 
with respect to a determination listed in paragraph (b)(4) of this 
section.
    (1) Contributions. For purposes of its books and records, or for 
purposes of furnishing information to a partner, the partnership needs 
to determine:
    (i) The character of an amount received from a partner (for example, 
whether it is a contribution, a loan, or a repayment of a loan);
    (ii) The amount of money contributed by a partner;
    (iii) The applicability of the investment company rules of section 
721(b) with respect to a contribution; and
    (iv) The basis to the partnership of contributed property. To the 
extent that a determination with respect to a contribution can be made 
from these

[[Page 374]]

and similar partnership-level determinations, therefore, the 
determination is more appropriately made at the partnership level. To 
the extent that that determination requires other information, however, 
that determination is more appropriately made at the partner level. For 
example, it may be necessary to determine whether the contribution of 
the property causes recapture from the contributing partner of the 
credit provided under section 38 in certain circumstances in which that 
determination is irrelevant to the partnership.
    (2) Distribution. For purposes of its books and records, or for 
purposes of furnishing information to a partner, the partnership needs 
to determine:
    (i) The charter of an amount transferred to a partner (for example, 
whether it is a distribution, a loan, or a repayment of a loan);
    (ii) The amount of money distributed to a partner;
    (iii) The adjusted basis to the partnership of distributed property; 
and
    (iv) The character of partnership property (for example, whether an 
item is inventory or a capital asset). To the extent that a 
determination with respect to a distribution can be made from these and 
similar partnership-level determinations, therefore, the determination 
is more appropriately made at the partnership level. To the extent that 
that determination requires other information, however, that 
determination is more appropriately made at the partnership level. Such 
other information would include certain factors used in determining the 
partner's basis for the partnership interest, such as the amount that 
the partner paid to acquire the partnership interest from a transferor 
partner if that transfer was not covered by an election under section 
754.
    (3) Transactions to which section 707(a) applies. For purposes of 
its books and records, the partnership needs to determine:
    (i) The amount transferred from the partnership to a partner or from 
a partner to the partnership in any transaction to which section 707(a) 
applies;
    (ii) The character of such an amount (for example, whether or not it 
is a loan; in the case of amounts paid over time for the purchase of an 
asset, what portion is interest); and
    (iii) The percentage of the capital interests and profits interests 
in the partnership owned by each partner.

To the extent that a determination with respect to a transaction to 
which section 707(a) applies can be made from these and similar 
partnership-level determinations, therefore, that determination is more 
appropriately made at the partnership level. To the extent that the 
determination requires other information, however, that determination is 
more appropriately made at the partner level. Examples of such other 
information are the cost to the partner of goods sold to the partnership 
and the extent to which the partner may be treated under section 267(c) 
as the constructive owner of a capital or profits interest actually 
owned by another.
    (4) Application of section 751. For purposes of its books and 
records, or for purposes of furnishing information to a partner for use 
in applying section 751, the partnership needs to determine:
    (i) The fair market value and adjusted basis of the partnership's--
    (A) Unrealized receivables (within the meaning of section 751(c)),
    (B) Substantially appreciated inventory (within the meaning of 
section 751(d)), and
    (C) Other property;

    (ii) A partner's share of each of the classes of assets described in 
paragraph (c)(3)(i) of this section; and

    (iii) Whether a distribution to a partner is a disproportionate 
distribution subject to section 751(b).


To the extent that a determination with respect to the application of 
section 751 can be made from these and similar partnership-level 
determinations, therefore, that determination is more appropriately made 
at the partnership level. To the extent that the determination requires 
other information, however, that determination is more appropriately 
made at the partner level. An example of such other information is the 
amount realized by a

[[Page 375]]

partner on the sale of a partnership interest.

(Sec. 6501(o) (as it read before the enactment of the Tax Equity and 
Fiscal Responsibility Act of 1982) and 7805 of the Internal Revenue Code 
of 1954 (92 Stat. 2818, 26 U.S.C. 6501(o); 68A Stat. 917, 26 U.S.C. 
7805))

[T.D. 7884, 48 FR 16243, Apr. 15, 1983]